Financial Exam Help 123

Category: Level I

  • Dividend Discount Models

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    Bill Campbell
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    A time-honored method to determine the value of an investment is to discount to the present all of the investment’s (expected) future cash flows, and tot up those present values.  It’s a method we use commonly when valuing bonds, and when valuing projects in which a company is considering investing (e.g., whether or not to…

  • Tax Bases

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    Bill Campbell
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    The tax base (it used to be tax basis, but somehow it changed to tax base; I think the reason is that the plural for each word is “bases” (pronounced <base-eez> and <base-ezz>, respectively), that someone mistook “bases” (plural of “basis”) to be “bases” (plural of “base”), and the error caught on) of an asset…

  • Accounting Taxes vs. Tax Return Taxes

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    Bill Campbell
    in

    One of the reasons that Level I candidates find income taxes confusing is that the Income Tax Expense shown on a company’s income statement generally is not equal to the tax liability that is shown on their income tax return.  The fact that they are different from each other is a little easier to understand…

  • Income Taxes – General

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    Bill Campbell
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    I debated for a long while whether to write a single article about taxes, or to write separate articles about each of the bits that go into taxes  I think that separate articles is the way to go.  So this is the general article that ties it all together, and provides definitions for all of…

  • Correlation . . . of, What, Exactly?

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    Bill Campbell
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    I already wrote an article on the tendency of people in finance to be sloppy in the language they use; you’ll find it here.  The purpose of this article is to expand on one specific area in which the language of finance people is particularly sloppy: correlation.  The problem, as I see it, is that…

  • Breakeven Analysis and Shutdown Analysis

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    Bill Campbell
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    By breakeven analysis we mean a determination of whether or not a firm can earn a positive (or zero) profit given its demand curve and its cost structure.  By shutdown analysis we me a determination of whether or not a firm should continue to operate in the short run and in the long run given…

  • Accounting Profit vs. Economic Profit

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    Bill Campbell
    in

    This will be a short article, mercifully. Accounting profit is the difference between accounting revenue and accounting cost, while economic profit is the difference between economic revenue and economic cost.  (I know: not very exciting.  Hang in there; it gets better.) Accounting revenue and economic revenue are the same: total revenue.  The amount you receive…

  • Marginal Stuff: Revenue, Cost, Profit, Product, & Return

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    Bill Campbell
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    Let’s get the terminology out of the way first. “Marginal” means “for the next unit”.  Thus: Marginal Revenue: The increase in revenue (sales) from producing and selling one additional unit of whatever it is you’re producing and selling Marginal Cost: The increase in cost (expenses) from producing and selling one additional unit of whatever it…

  • Elasticities: Price, Income, and Cross

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    Bill Campbell
    in

    This article contains a number of supply and demand graphs.  Before reading it, I encourage you to look at this short article I wrote on these graphs, so that you don’t risk suffering irreparable trauma when you see them. The idea of elasticity is fairly simple, yet it can be baffling to many candidates (primarily…

  • Economics – Weird Graphs

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    by

    Bill Campbell
    in

    This is a very short article, but one that you should read before reading any other article that deals with supply and demand. In a nutshell, economists’ supply and demand graphs – price vs. quantity – are weird.  (By “weird” I mean “stupid”.)  For whatever reason, some economist a bazillion years ago decided that these…